SEC Regulatory Pause: Beware of "Little Puppy Dog" Style Short-term Market Optimism

The U.S. government shutdown has become a focal point in the crypto market. As regulators enter a “low-power mode,” some investors are developing a dependency mindset—hoping that the absence of regulation will turn into a long-term market advantage. But this optimism may be overly naive.

U.S. Government Shutdown Impacts SEC Operations

According to the latest news as of January 31, 2026, due to Congress’s failure to approve the budget on time, the U.S. Securities and Exchange Commission (SEC) has been forced into emergency mode. A large number of staff have been furloughed, with only a minimal number remaining to maintain basic operations. This means that the full regulatory system—covering reviews, investigations, and enforcement in the crypto market—is now only able to sustain its most fundamental functions.

From stock approvals to token reviews, from case investigations to exchange oversight, all these previously orderly tasks are now facing varying degrees of delay. For the cryptocurrency industry, which has been under SEC scrutiny, this is undoubtedly an unexpected “breather.”

Short-term Market Reactions and Long-term Challenges

The market did react positively to this news. Many investors believe that during this regulatory vacuum, the approval process for Bitcoin spot ETFs might accelerate, and token projects previously under SEC scrutiny could seize the opportunity to advance their development plans. Some trading data shows that market participants are beginning to adjust their positions, betting on the “regulatory vacuum” narrative.

However, this dependency mindset, akin to a “puppy-like” reliance, conceals deeper risks. Over the past year, SEC scrutiny of the crypto ecosystem has hardly paused—from lawsuits against Ripple to inquiries into various token issuance methods. These cases and investigations may be on hold now, but they will not disappear.

The Shutdown Will End Sooner or Later, and Regulation Will Catch Up

Government shutdowns are usually temporary. Once fiscal issues are resolved, the SEC will inevitably resume full operations. More concerning is that when agencies restart, they may face even more intense workload—those accumulated tasks during the shutdown must be addressed with double effort.

This means regulators might adopt a more aggressive review stance, focusing on cases that couldn’t be processed in time. For companies that accelerated project development or relaxed risk controls during this period, they may face stricter accountability when scrutiny resumes.

How Should Investors Respond?

During this special period, investors need to stay rational and avoid excessive optimism. While regulatory pressure has temporarily eased, making trading decisions based on this assumption could entail long-term risks. Truly valuable projects should gain recognition through technological innovation and compliance efforts, not by relying on regulatory gaps.

Regulation is only delayed, never absent. When the SEC restarts its engine, the crypto market must be prepared for more rigorous scrutiny. Rational investment strategies should be based on compliance and fundamental project quality, rather than a “puppy-like” dependency mindset during the regulatory vacuum.